9:00am (EST)
The bulls continue to climb the wall of worry with no fear of slipping after pushing all-time highs again on Tuesday. The market clearly has momentum and some of the upside targets I have given since early December and reiterated again in March are starting to trigger.
The Dow added 69 points, or 0.4%, to end at 16,675. The blue-chips traded to a high of 16,688 and came within 47 points of triggering a fresh all-time high. I have said there is fluff to 16,800-17,000 on closes above 16,600 but I thought there would be a bigger breakout on Tuesday, or at least a close above 16,700. Support has moved up to 16,500 with backup at 16,400-16,350.
The S&P 500 surged 11 points, or 0.6%, to settle at 1,911. The index danced with my March 1,909 fluff target throughout the day and reached an all-time intraday peak of 1,912.28. I have said there could be additional fluff to 1,925 on a close above 1,909 but any closes back below 1,900 could jeopardize that target.
The Nasdaq zoomed 51 points, or 1.2%, to finish at 4,237. Tech easily won the “war” at 4,200 but remains a little more than 3% away from its 52-week high of 4,371. The index made a run at my initial December target of 4,400-4,500 in early March before the fade to 4,000 in late April. If the bulls keep their momentum, another run into this zone is possible. Any closes back below 4,200 bears watching.
The Russell 2000 soared 16 points, or 1.4%, to close at 1,142. The small-caps led Tuesday’s charge and tested 1,144 shortly after the open. Near-term resistance at 1,140 cleared but tougher hurdles at 1,150 and 1,175 remain. The index is 4% away from triggering 1,200 again.
The S&P 500 Volatility Index ($VIX, 11.51, up 0.15) spiked to 11.84 shortly after the opening bell but was in a steady decline afterwards. The VIX got more air time again yesterday as the slick talking pros weighed in on the 7-year low. Of course, some of the talk was “when the VIX is low it’s time to go” and these low levels heed warning. I have said the VIX could reach single-digits this year with the S&P at 2,100. It is too soon to tell if this happens sooner rather than later but any closes back above 12.50 and then 13.50 could be warning signs.
The portfolio is still light but I mentioned yesterday I didn’t want to chase the market until I saw how Tuesday’s close went. While I remain bullish up to the fluff targets I have given, I am turning cautious as more and more analysts flip-flop from turning bearish to bullish all of a sudden. However, there is a bullish trade I like for this morning on CVS. I usually wait until after 10am to initiate new trades but I think we can get into these call options for double-nickels or better.
From desk to press, futures look like this: Dow (+21); S&P 500 (+2); Nasdaq (+4).
Closed Trades for 2014: 48-28 – the Weekly Wrap is 14-3 for 2014 (99-10, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk. All trades are dated and time stamped so new subscribers can look at our past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades. Please remember, ALL “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” if we want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 12pm-1pm updates. Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames.
New Trade!!!
CVS Caremark (CVS, $77.17, up $0.05)
Buy to OPEN July 80 calls (CVS140719C00080000, $0.50, down $0.05)
Action: Use limit orders of 50-55 cents on the open. If shares open higher and the options price at 60 cents or more, void the trade. If shares open lower, the trade should get filled.
Current Trades
Apollo Group (APOL, $27.49, up $0.21)
June 25 puts (APOL140621P00025000, $0.45, down $0.05)
Entry Price: $0.55 (4/28/2014)
Exit Target: $1.10 (limit order to close half)
Return: -18%
Stop Target: None
August 23 puts (APOL140816P00023000, $0.65, down $0.05)
Entry Price: $0.70 (4/28/2014)
Exit Target: $1.40 (limit order to close half)
Return: -7%
Stop Target: None
Action: Shares traded to a low of $26.80 yesterday but the bears failed to hold the 200-day MA at $27. There is risk to $28 and then $30 on a back test as a few analysts defended the stock following the plunge from $30 to $26 last week.
Kirkland’s (KIRK, $18.25, up $0.33)
June 15 puts (KIRK140621P00015000, $0.15, flat)
Entry Price: $0.45 (5/20/2014)
Exit Target: $0.90
Return: -67%
Stop Target: None
Action: This was an earnings trade that hasn’t worked out as planned as there is risk to $20. A close below $17.50 should lead to a test to $15. The longer-term chart shows a test to the low teens is possible.
iShares Russell 2000 (IWM, $113.58, up $1.61)
June 103 puts (IWM140621P00103000, $0.15, down $0.15)
Entry Price: $0.68 (5/20/2014)
Exit Target: $1.40
Return: -78%
Stop Target: None
Action: Although the position is down, I like the “protection” this trade offers over the next month. Resistance at $114 held with support moving up to $112. Nearly 16,000 contracts traded on this option yesterday and shows some traders are still expecting a bear curveball over the next 4 weeks. I am moving this trade to “HOLD” and will bring back coverage when the losses are under 50% or less.
Bed, Bath & Beyond (BBBY, $61.45, up $0.09)
June 60 puts (BBBY140621P00060000, $0.55, down $0.05)
Entry Price: $0.60 (5/14/2014)
Exit Target: $1.20
Return: -8%
Stop Target: None
August 55 puts (BBBY140816P00055000, $0.60, down $0.05)
Entry Price: $0.63 (5/14/2014)
Exit Target: $1.25
Return: -5%
Stop Target: None
Action: Support is at $60 and a break below this level will likely lead to $57.50-$55. Resistance is at $61.50-$62.50.
Twitter (TWTR, $30.51, up $0.01)
January 50 calls 2015 (TWTR150117C00050000, $0.90, flat) LEAP option
Entry Price: $1.75 (5/8/2014)
Exit Target: $3.50-$5
Return: -49%
Stop Target: None
Action: Shares had traded lower for 10-straight sessions before yesterday’s penny gain. Near-term resistance is at $32 and a move above this level would be bullish. Support is at $30. This is a longer-term option that gives the trade until next January for this story to play out. An analyst upgrade today should give shares a nice pop at the open.
McDonald’s (MCD, $102.36, up $0.36)
July 95 puts (MCD140719P00095000, $0.30, down $0.05)
Entry Price: $0.70 (5/6/2014)
Exit Target: $1.40
Return: -57%
Stop Target: None
Action: Shares are dancing with the uptrend line and a break below $101.50 would be beàrish. There is risk to $105. These options have 2 months before they expire so there is plenty of time for the trade to play out.
Other 2014 Portfolio OPEN positions (0): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means we would not open any new positions. We are still keeping track of the trades and we will record the results accordingly, when we close them or if the options expire. Click on the 2014 Portfolio link in the Members Area to view ALL open/ closed trades.
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